You have just obtained your CPA designation and have decided to open up your own public accounting office in Saint Laurent. You opened up a current account at the local chartered bank and met with the branch manager, Mr. Osmond. You told him that you had just opened your own public accounting office today with your friend, Gary Michaels. It will be called Mason and Michaels, CPA. You, Terry Mason, were eager to get started and find clients. Three days after meeting with Mr. Osmond, he called and told you he may have a client for you, Elly's Restaurant that was opened about three years ago, October 27, 2018. He mentioned that the restaurant employed a dozen people and the owner Elly McNeil had no accounting background, but she employed a young Concordia graduate, Jonathon Fitzgerald. He had a Bachelor of Commerce degree, but lacked practical experience. He has been with the restaurant since it opened. He set up the system of internal controls. Jonathon also looked after human resources, the purchase ordering and purchased a computer system for the restaurant. Also, under the Quebec government law, he had installed the black box at the cash registers.

Mrs. McNeil met with Mr. Osmond to get a loan of $950,000 for renovations. In addition she indicated to him that she was looking to open a second restaurant in Saint Bruno. She had a location in mind. Mr. Osmond was surprised how fast the business was growing and asked her to provide AUDITED financial statements for the year ended September 30, 2021. Mr. Osmond gave her your phone number as he felt he could help your practice grow and at the same time help Mrs. McNeil. Mrs. McNeil was using the firm Proctor and Associates up until now. They were doing compilations up until now. She called Mr. Proctor and told him that she was changing public accountants from his firm to yours.

Mrs. McNeil called you on July 15, 2021 and asked to meet with you for the preparation of the year end audit. You agreed to meet with her at the restaurant to discuss the engagement. You were surprised on what you saw. You knew little about the restaurant business. You found out that the internal controls were non-existent despite the fact that Mrs. McNeil said they were very good. She did not even sign the cheques herself. Jonathon prepared and signed the cheques as well as making the bank deposits. Also, she showed you a letter from the Minister of Revenue indicating that they were coming in to do a sales audit. As far as you saw, the sales tax reports were being filed on time, but the cheques paid to the Minister were different than the reports filed. You were also told that there were twelve employees full and part time, but there were only ten payroll cheques made every two weeks. You asked to see the inventory which was in the frozen freezer and the normal fridge. It seemed normal except you noticed in the garbage bin a huge amount of food being thrown out.

You went on to see Jonathon and asked him for the chart of accounts, the last trial balance prepared (March 31, 2021), an accounts payable listing and the bank reconciliation. He mentioned to you that the restaurant follows ASPE, that he was loaded with work and has never done or seen recent bank reconciliations since March. You evaluated the internal control system and evaluated it to be weak. You still wanted to accept the audit engagement to please Mr. Osmond and show him what you were capable of doing.

After consulting Mr. Proctor, you told Mrs. McNeil you would accept the audit, send her an engagement letter and start planning your audit. You decided to write the planning memo, outlining the audit engagement to be done at Elly's Restaurant. As a second engagement Mrs. McNeil gave you all the documents and correspondence with Revenue Quebec to discuss with them the GST-PST audit.

Instructions

Apply the Macdonald methodology to solve the case